Tags: bill | gross | fed | support

Gross: Fed Will Have to Support Economy If Weakness Remains

Friday, 05 Mar 2010 03:43 PM

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The Federal Reserve might continue to buy mortgage-backed securities and take other measures to inject liquidity into a still ailing economy, says Bill Gross, co-chief investment officer and founder of Pimco and manager of the world's largest bond fund.

Many of the Fed's liquidity programs are set to expire at the end of March, but monetary authorities might consider renewing such measures because growth won't be strong enough without them.

“These things have all been very critical but let's face it — they're expiring at the end of March,” Gross says. “The critical question ... is do we really need Uncle Sam and the check writing to continue?”

Gross says he is skeptical of the economy's ability to grow without the government programs and adds it's possible for “some of these programs to come back” if recovery is uncertain, CNBC reports.

He said sees economic struggles continuing over a three- to five-year period — and even as long as 10 years, depending on circumstances.

The Federal Reserve recently pointed out that the economy is growing thanks in part to a slight improvement in consumer spending but added the labor market remains weak.

“Although some districts reported an uptick in hiring or a slowdown in layoffs, labor markets generally remained soft throughout the nation, which resulted in minimal wage pressures,” the Federal Reserve said in its Beige Book report, according to the AFP.

The U.S. economy expanded in the last two quarters of 2009 after the worst recession in decades that came from the housing mortgage meltdown.

Although economic setbacks from the weather are temporary, they come at a fragile time, as the economy is struggling to recover from the worst and longest recession since the 1930s.

After a big growth spurt at the end of last year, many economists believe the recovery lost steam in the first three months of this year. They predict it will grow at a pace of around 3 percent from January to March. That won't be fast enough to drive down the unemployment rate, now at 9.7 percent.

Even though companies have slowed the pace of massive layoffs, they aren't in the mood to hire.

With the economy only slowly healing, Federal Reserve Chairman Ben Bernanke recently told Congress that record-low interest rates are still needed to support economic activity.

The Fed has held its key rate near zero for more than a year. The rationale: super-low rates will induce Americans to boost spending, which would aid economic growth.

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